Deutsche Bank v. Arrington ( 2015 )

PRESENT: All the Justices
DEUTSCHE BANK NATIONAL TRUST
COMPANY, AS TRUSTEE FOR SOUNDVIEW
HOME LOAN TRUST 2006-WF2, ETC.,
ET AL.
OPINION BY
v. Record No. 140978 JUSTICE WILLIAM C. MIMS
June 4, 2015
LYNORE ARRINGTON
FROM THE CIRCUIT COURT OF BEDFORD COUNTY
James W. Updike, Jr., Judge
In this appeal, we consider whether Code § 55-52, which
codifies the doctrine of after-acquired title, retroactively
cures a title defect in a deed of trust to subject the interest
of a subsequent purchaser without notice or a lien creditor to
the deed of trust. We also consider whether a party who
acquires a deed of trust pursuant to a court order is a lien
creditor, and whether a prior deed of trust recorded outside a
party's chain of title is "duly admitted to record" for purposes
of Code § 55-96(A).
I. BACKGROUND AND MATERIAL PROCEEDINGS
Lynore Arrington ("Arrington") was married to William
Plucky ("Plucky") from 1992 to 2004. While married, they
acquired property located at 113 Waters Edge in Moneta (the
"Property") as tenants with the right of survivorship by general
warranty deed. On November 17, 2004, the Circuit Court of
Franklin County entered a final decree of divorce dissolving the
marriage. The decree affirmed and incorporated a separation and
property settlement agreement under which Plucky acquired the
Property and agreed to pay Arrington $11,000 per year for a
period of ten years beginning in January 2006. Arrington
conveyed her interest in the Property to Plucky by deed of gift
executed on July 15, 2004 and recorded on July 29, 2004.
On July 7, 2005, Plucky conveyed the Property to Donald L.
Riemenschneider ("Riemenschneider") by general warranty deed,
which was recorded on July 12, 2005. Then on August 22, 2006,
Plucky executed a deed of trust ("Deutsche Bank Deed of Trust")
purporting to convey the Property in trust to secure a note for
$675,000, currently held by appellant Deutsche Bank National
Trust Company. 1 The Deutsche Bank Deed of Trust was not recorded
until May 21, 2008. 2
1
Also on August 22, 2006, Riemenschneider executed a
quitclaim deed re-conveying the Property to Plucky. This deed
was never recorded, and it appears that the original has been
lost. Below, Arrington refused to admit to its validity, and
Deutsche Bank relied on the doctrine of after-acquired title to
cure its deed of trust. During oral argument, Deutsche Bank
repeatedly stated that Code § 55-52 was necessary to cure its
deed of trust, conceding the fact that the quitclaim deed failed
to pass title to Plucky. See Capozzella v. Capozzella, 213 Va.
820, 823, 196 S.E.2d 67, 70 (1973) (noting that while
recordation is not necessary to pass title, "[f]or a deed to
pass title, there must be delivery"); see also Bulifant v.
Slosjarik, 221 Va. 983, 986, 277 S.E.2d 151, 152 (1981) (noting
that delivery may be inferred from the circumstances of a
transaction).
2
Appellants, Samuel I. White, P.C. and Wells Fargo Home
Mortgage are the substitute trustee appointed by Deutsche Bank
National Trust Company and attorney-in-fact for Deutsche Bank
National Trust Company respectively. This opinion refers to
appellants collectively as "Deutsche Bank."
2
On March 19, 2009, Plucky executed a deed of trust in favor
of Arrington ("Arrington Deed of Trust") to purge a contempt
order entered by the Circuit Court of Franklin County. The
contempt order was entered following Plucky's "failure to pay
the debts as set forth in the divorce decree," as well as
additional debts set forth in an order entered December 4, 2008.
The circuit court ordered Plucky to execute the Arrington Deed
of Trust and pay $2000 per month to Arrington's attorney "until
the sums referred to in the prior Orders and the deed of trust
are paid in full." The Arrington Deed of Trust states that it
secures "the payment of certain Court ordered obligations set
forth in Orders entered by the Circuit Court of Franklin County
on November 17, 2004, December 4, 2008, and March 19, 2009."
On July 6, 2009, Riemenschneider executed a general
warranty deed re-conveying the Property to Plucky. This deed
was recorded on July 17, 2009 at 1:10 p.m. At 1:11 p.m. on July
17, 2009, Arrington recorded her deed of trust along with copies
of the final decree of divorce, the December 4, 2008 order, and
the March 19, 2009 order.
On February 15, 2013, Deutsche Bank filed a complaint in
the Circuit Court of Bedford County against Arrington and other
defendants seeking a declaratory judgment that the Deutsche Bank
3
Deed of Trust is a valid first priority lien on the Property. 3
In response, Arrington filed an answer requesting a declaration
that the Arrington Deed of Trust is a valid first priority lien
on the Property. After conducting discovery, Deutsche Bank and
Arrington filed cross-motions for summary judgment.
On October 25, 2013, the parties came before the circuit
court for a hearing on the motions for summary judgment. After
hearing argument, the circuit court denied Deutsche Bank's
motion for summary judgment, granted Arrington's motion for
summary judgment, and ruled that the Arrington Deed of Trust had
priority over the Deutsche Bank Deed of Trust. The circuit
court reasoned that when Arrington recorded her deed of trust,
Plucky was the record owner of the Property, whereas when
Deutsche Bank recorded its deed of trust, Riemenschneider was
the record owner of the Property. The circuit court also ruled
3
The complaint also named Arrington's attorneys in their
capacity as trustees on the Arrington Deed of Trust, Plucky, and
High Point Section 8 Property Owners' Association as defendants.
Previously, in 2010, Deutsche Bank had filed a complaint against
Plucky, Riemenschneider, and other defendants seeking a
declaratory judgment that the Deutsche Bank Deed of Trust was a
valid first priority lien on the Property, or in the
alternative, an order directing Riemenschneider to execute and
deliver a new quitclaim deed conveying title to Plucky. This
complaint did not name Arrington as a defendant. After the
defendants failed to appear, the circuit court entered an order
granting default judgment, confirming that the Deutsche Bank
Deed of Trust was a valid lien on the Property, and continuing
the matter to determine its priority. Thereafter, the matter
was dismissed for failure to prosecute pursuant to Code § 8.01-
335.
4
that Code § 55-52 could not elevate the Deutsche Bank Deed of
Trust in priority over the Arrington Deed of Trust.
On March 21, 2014, the circuit court entered a final order
memorializing its rulings. Deutsche Bank filed its objections
and a motion to reconsider, which the court denied after a
hearing. Deutsche Bank appeals.
II. ANALYSIS
A. Standard of Review
"In an appeal from a circuit court's decision to grant or
deny summary judgment this Court reviews the application of law
to undisputed facts de novo." St. Joe Co. v. Norfolk
Redevelopment & Hous. Auth., 283 Va. 403, 407, 722 S.E.2d 622,
625 (2012). Further, this Court reviews questions of statutory
interpretation de novo. Conyers v. Martial Arts World of
Richmond, Inc., 273 Va. 96, 104, 639 S.E.2d 174, 178 (2007).
B. The Application of Code § 55-52
Deutsche Bank argues that Code § 55-52 — when read with
Code § 55-10 4 — renders it irrelevant whether Plucky had title in
2006 when he executed the Deutsche Bank Deed of Trust. Deutsche
Bank also appears to argue that Code § 55-52 renders it
irrelevant whether Arrington is a bona fide purchaser or lien
4
"A writing which purports to pass or assure a greater
right or interest in real estate than the person making it may
lawfully pass or assure shall operate as an alienation of such
right or interest in such real estate as such person might
lawfully convey or assure . . . ." Code § 55-10.
5
creditor under Code § 55-96(A). In Deutsche Bank's view, when
Riemenschneider conveyed the Property to Plucky by general
warranty deed on July 6, 2009, Code § 55-52 cured the title
defect in its deed of trust retroactive to August 22, 2006.
With respect to the Arrington Deed of Trust, Deutsche Bank
contends that Plucky could convey only what he held, and
therefore, the conveyance between Plucky and Arrington was
subject to the Deutsche Bank Deed of Trust. We disagree.
Code § 55-52 provides:
When a deed purports to convey property,
real or personal, describing it with
reasonable certainty, which the grantor does
not own at the time of the execution of the
deed, but subsequently acquires, such deed
shall, as between the parties thereto, have
the same effect as if the title which the
grantor subsequently acquires were vested in
him at the time of the execution of such
deed and thereby conveyed.
Significantly, Deutsche Bank's reading ignores the clause "as
between the parties thereto," which limits the effect of the
statute to the grantor and grantee, in this instance Plucky and
Deutsche Bank. Read in its entirety, Code § 55-52 provides that
when a grantor purports to convey property — without holding
title — to a grantee, the grantor cannot thereafter deny that
title has actually passed to the grantee. See Hausman v.
Hausman, 233 Va. 1, 4, 353 S.E.2d 710, 711 (1987). Code § 55-52
governs the rights of a grantee vis-à-vis the grantor. It does
not purport to affect the deeds of third parties, in this
6
instance Arrington, or influence the relative priority of their
interests.
Although Code § 55-52 does not use the term "deed of
trust," we have previously intimated that its provisions could
estop the grantor under a deed of trust from denying that title
had actually passed to the trustee as security for a loan. See
Hausman, 233 Va. at 4, 353 S.E.2d at 711. We now hold that the
plain meaning of "deed" in this context includes deeds of trust.
See Black's Law Dictionary 501 (10th ed. 2014) (defining "deed"
as "[a] written instrument by which land is conveyed [or] any
written instrument that is signed, sealed, and delivered and
that conveys some interest in property"); id. at 502 (defining
"deed of trust" as "[a] deed conveying title to real property to
a trustee as security until the grantor repays a loan").
Code § 55-52 is located in Chapter 4, Article 1 of Title
55, Form and Effect of Deeds and Leases, which generally governs
such instruments conveying interests in real property. Four
subsequent articles relate to specific categories of such
instruments and terms used therein. Article 2 provides specific
rules relating to deeds of trust. Nothing in Chapter 4 of Title
55 indicates that the General Assembly intended to restrict the
meaning of the word "deed" in the initial general article of the
chapter to exclude deeds of trust. See Commonwealth v. Zamani,
256 Va. 391, 395, S.E.2d 608, 609 (1998) ("The plain, obvious,
7
and rational meaning of a statute is to be preferred over any
curious, narrow, or strained construction.").
Moreover, to conclude that the term "deed" as used in
Chapter 4 of Title 55 does not include deeds of trust would
undermine creditors' protections that are implicit throughout
the chapter. For example, if Code § 55-52 did not apply to
deeds of trust, a creditor could not avail itself of the after-
acquired title doctrine to validate a security interest conveyed
by a deed of trust before the grantor acquired valid title. In
such cases, the creditor would remain unsecured.
C. The Priority of the Deeds of Trust
The Virginia recording act, Code § 55-96, governs issues of
priority. The statute provides:
Every (i) such contract in writing, (ii)
deed conveying any such estate or term,
(iii) deed of gift, or deed of trust, or
mortgage conveying real estate . . . shall
be void as to all purchasers for valuable
consideration without notice not parties
thereto and lien creditors, until and except
from the time it is duly admitted to record
in the county or city wherein the property
embraced in such contract, deed, or bill of
sale may be.
Accordingly, the Deutsche Bank Deed of Trust does not impair
Arrington's priority if she is either (1) a purchaser for
valuable consideration without notice or (2) a lien creditor,
and the Deutsche Bank Deed of Trust was not "duly admitted to
record" before she qualified as either. If she is a lien
8
creditor and the Deutsche Bank Deed of Trust has not been "duly
admitted to record," then it is irrelevant whether she had
notice of Deutsche Bank's interest. See Neff v. Newman, 150 Va.
203, 211, 142 S.E. 389, 391 (1928) (discussing statutory
predecessors to Code § 55-96); see also Cavalier Serv. Corp. v.
Wise, 645 F. Supp. 31, 36 (E.D. Va. 1986).
Deutsche Bank argues that Arrington is not a lien creditor
because her deed of trust was executed to purge a contempt
order, which it contends is not a judgment. Further, Deutsche
Bank contends that that even if Arrington did obtain a judgment,
she did not record the judgment on the judgment lien docket of
Bedford County. 5 We disagree.
First, "the essence of a mortgage or deed of trust is that
it creates a lien on property to secure a debt." Interstate
R.R. Co. v. Roberts, 127 Va. 688, 692, 105 S.E. 463, 464 (1920);
see High Knob Assocs. v. Douglas, 249 Va. 478, 484 n.4, 457
S.E.2d 349, 352 n.4 (1995) ("A deed of trust merely creates a
lien on property to secure a debt."). Although the Code does
5
In its first assignment of error, Deutsche Bank argues
that the circuit court failed to determine whether Arrington was
"a purchaser for valuable consideration without notice" or a
"lien creditor." Although the final order entered by the
circuit court did not use those terms, it did recite that
Arrington had "establish[ed] a lien" against the Property.
Regardless, the circuit court's failure to explicitly rule on
the question is not dispositive. As explained below, Arrington
is a lien creditor for purposes of Code § 55-96(A), and the
Deutsche Bank Deed of Trust is void against her as a lien
creditor.
9
not define "lien creditor" for purposes of Code § 55-96(A), the
term is not ambiguous. See Black's Law Dictionary, supra, at
450 (defining "lien creditor" as "[a] creditor whose claim is
secured by a lien on the debtor's property; specif., someone who
is (1) a creditor that has acquired a lien by attachment, levy,
or the like . . . ."). To rule that Arrington is not a lien
creditor would require us to ignore the fundamental nature of a
deed of trust and the plain meaning of "lien creditor."
Moreover, Arrington is a lien creditor because she obtained
a judgment and subsequently obtained a lien against the Property
to secure the benefit of her judgment. Code § 8.01-426 provides
that "a decree or order requiring the payment of money, shall
have the effect of a judgment . . . and be embraced by the word
'judgment' where used in this chapter or in Chapters 18, 19, or
20 of this title or in Title 43." The November 17, 2004 final
decree of divorce, which ratified and incorporated the
separation and property settlement agreement, and the December
4, 2008 order, which ordered Plucky to make certain payments for
the benefit of Arrington, fit this statutory definition of
"judgment." Therefore, Arrington is a judgment creditor. See
Code § 8.01-427 ("The persons entitled to the benefit of any
decree or order requiring the payment of money shall be deemed
judgment creditors.").
10
Ordinarily a judgment does not become a lien on real estate
until "such judgment is recorded on the judgment lien docket of
the clerk's office of the county or city where such land is
situated." Code § 8.01-458; see Matney v. Combs, 171 Va. 244,
250, 198 S.E. 469, 472 (1938). However, in the present case,
the circuit court awarded Arrington a deed of trust to secure
the previous judgments, and Arrington recorded her deed of trust
in the land records of Bedford County, thereby obviating the
need to record the judgments on the judgment lien docket.
As explained above, her deed of trust is a lien on the
Property. See Interstate R.R. Co., 127 Va. at 692, 105 S.E. at
464. When Riemenschneider conveyed the Property to Plucky by
general warranty deed on July 6, 2009, Code § 55-52 provided
that the Arrington Deed of Trust had the "same effect" as though
Plucky held legal title at the time he executed the Arrington
Deed of Trust on March 19, 2009. At that moment, Arrington
became a lien creditor.
The remaining question is whether the Deutsche Bank Deed of
Trust was "duly admitted to record" before Arrington qualified
as a lien creditor. The word "duly" means "[i]n a proper
manner; in accordance with legal requirements." Black's Law
Dictionary, supra, at 610; see also Webster's Third New
International Dictionary 700 (1993) (defining "duly" as "in a
due manner, time, or degree: as is right and fitting: properly,
11
regularly, sufficiently"). The Deutsche Bank Deed of Trust was
recorded before Plucky acquired legal title of record;
therefore, it is outside Arrington's chain of title. See Code
§ 55-105. Because the Deutsche Bank Deed of Trust was not
properly recorded in the chain of title, it was not "duly
admitted to record" even though it was recorded before Arrington
acquired her interest. Finally, because Arrington is a lien
creditor, whether she had actual or constructive notice of the
Deutsche Bank Deed of Trust is irrelevant. See Code § 55-
96(A)(1). Therefore, Arrington qualifies as a lien creditor
under Code § 55-96(A)(1), and as a result, the Arrington Deed of
Trust has priority over the Deutsche Bank Deed of Trust. 6
III. CONCLUSION
For the reasons stated, we hold that Code § 55-52 only
applies between the parties to a deed and does not affect the
rights of third parties or influence the relative priority of
their interests. Rather, Code § 55-96(A) governs questions of
priority between deeds. We also hold that an individual who
obtains a deed of trust pursuant to court order to secure the
payment of court-ordered obligations is a lien creditor for
purposes of Code § 55-96(A). Finally, we conclude that a deed
of trust recorded outside a lien creditor's chain of title is
6
Because we conclude that Arrington is a lien creditor, we
do not address Deutsche Bank's final assignment of error, which
asserts that the circuit court misapplied Code § 55-105. By its
plain language, Code § 55-105 applies only to purchasers.
12
not "duly admitted to record," and therefore is void as to such
lien creditor. Therefore, we affirm the judgment of the circuit
court.
Affirmed.
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